During the past decade many Americans have faced a reality where their debt has exceeded their income, sometimes through no fault of their own. So when I saw an infographic come in about how consumers can protect themsleves, I thought it would be interesting to share.

This from the creator, Frugal Dad:

Collector abuse is definitely on the rise. Since the recession, formal complaints against collectors have risen 66% and dozens of private debt collection agencies have lost licenses for their abusive collection methods. This is due in part to the major shove big banks have made since 2008 to recover billions in unpaid credit and penalties. Since then, most of these creditors, from Chase to the Dept. of Education, have contracted collections to private firms. These smaller agencies pay collectors little and reward with commissions on debts recovered. As a result, some collectors, many in debt themselves, have been found lying, stalking and even threatening to make collection quotas.

The ones that drive me batty are the vultures that buy the old debt of people they don’t actually have location/contact info on, and then simply start harrassing anyone and everyone with a similar name or number in hopes of finding the debtor. Or of finding a chump who will pay them just to STFU.

Someone with a similar name to mine (different middle initial, different age) racked up student loan debt, and then dropped off the radar. For FOUR YEARS I would get collection calls. Every time a new company started calling I would inform them they had the wrong person (I worked my way through all of my degrees without ever taking out a single student loan) and to quit calling. I usually had to tell them several times. (I never received any written notices, mind you, and I wasn’t going to give them my address anyway. But lack of written notice is a strong sign they’re “fishing,” and it’s not you they’re looking for.)

Sooner or later they would quit calling — and simply sell the account down the line to another bottom-fishing vulture agency and the process would begin all over again. Because they would never ever note in the file that I had positively confirmed I was not the debtor. Doing so would reduce the saleability of the debt file, you see.

When my remaining parent passed away last year, four vulture companies filed papers on the estate using similar screening methods. Not a one of them actually had a collectible debt, and all were thrown out during probate for lack of documentation.

Quick semantic note: debt and income are not comparable. Debt and wealth are comparable, income and interest or mandatory payments are comparable.

Jason: while it is true that no-one forces you to take on debt (most of the time, anyway), it is not true that the fact that their debt obligations exceed their ability to pay is the fault of the borrower.

For example, lots and lots of people with perfectly reasonable loans and then suddenly lost their jobs in 2008. Would you argue that they are to blame for that? On the flip side, lending institutions are very good at “predatory” lending practices (especially before the CFPB) which can mislead people. Now, is it theoretically true that the borrows should have read all of the fine print and understood the conditions under which banks would increase rates? Yes. Is that really a reasonable thing to expect? No.

We apply this logic even to things that are more obviously the “user”‘s fault: the crack addict is technically to blame for taking the crack, but we still treat the dealers more harshly than the users. I don’t think the analogy goes very far, but the point is that just because someone has a choice, doesn’t mean that they’re completely to blame for the outcome of that choice.

This infographic seems to be missing a couple of things: 1) Outsourcing collections is NOT GOOD FOR BANKS. It’s a last resort. It’s good for banks in that it mitigates extreme losses and lets them settle for merely huge ones- like cutting your foot off before gangrene kills you. The fact that a bank sold a portfolio of outstanding accounts for $20B means it had extended maybe 1.5-5 times that amount in now-bad credit. The bank sells the debt to a collection agency for a small percentage of what it actually laid out in the first place. The remainder is a loss to the bank. In order for the collection agency to see a potential profit, it has to hope that it collects a higher proportion than that $20B represents. The rest shows up on the bank’s balance sheet as pure loss. The ‘new normal’ for such losses is about six times higher than it was before the meltdown. Banks are culpable for failing to provide accurate information and proper documentation to collections agencies, but not for the simple act of cutting their losses.
2) If overall debt goes up, the number of delinquent accounts goes up, then the number of collections attempts goes up, then the number of opportunities for collector screw-ups and malfeasance goes up. What this infographic fails to do is contextualize that. 66% more lying, stalking, and threatening? 41% more complaints? If the workload goes up by 600% and the ‘acts of scumminess’ go up by 41% or 66%, that doesn’t indicate a recently-introduced systemic problem. If anything, it suggests the overall rate of scumminess might be going down. Collection-related malfeasance goes up as collection accounts in the system increase. Where’s the news?
3) If bad collection behavior is being prosecuted, as the infographic seems to show (in an incongruously anecdotal rather than quantitative way), and those punishments are also increasing, is the system functioning as it should?
For the record, credit card collections processes are ugly business. It’s easy to recognize the legitimate right of a person behind on his bills to not be harassed. It’s not easy to recognize the right of another person to max out his credit cards buying stuff, then not paying the bill, and then keeping the stuff (we generally see that as stealing). Setting the rules for fair play in collections is hard to do, and our current system is not even close to where it needs to be. But some of the stats given here without context add no meaning or insight to the discussion.

Leave a Reply

Name (required)

Mail (will not be published) (required)

Website

NOTE TO COMMENTERS:

You must ALWAYS fill in the two word CAPTCHA below to submit a comment. And if this is your first time commenting on Donklephant, it will be held in a moderation queue for approval. Please don't resubmit the same comment a couple times. We'll get around to moderating it soon enough.

Also, sometimes even if you've commented before, it may still get placed in a moderation queue and/or sent to the spam folder. If it's just in moderation queue, it'll be published, but it may be deleted if it lands in the spam folder. My apologies if this happens but there are some keywords that push it into the spam folder.

One last note, we will not tolerate comments that disparage people based on age, sex, handicap, race, color, sexual orientation, national origin or ancestry. We reserve the right to delete these comments and ban the people who make them from ever commenting here again.

Thanks for understanding and have a pleasurable commenting experience.